RBI Plans on Granting Greater Flexibility to Banks for Restructuring of Bad Loans
According to a statement released by RBI Governor, RaghuramRajan, the Reserve Bank of India plans on offering greater flexibility to banks for restructuring of distressed loans. This shall be done with the objective of steering funding towards cash-strapped infrastructure projects.
In view of the poor state of affairs in the development of infrastructure projects due to the lack of funding, the Reserve Bank of India plans on giving banks greater flexibility which will enable the banks in restructuring loans and thereby steer funds towards these projects. There will however be no major changes as Rajan adds in his speech at the Institute of Rural management in Gujarat, that the RBI would continue to ensure lenders flag and deal with problematic loans quickly because there continue to be risks in the India’s financial system in case banks engage in ‘ostrich-like’ behaviour with the hope that the problems will go away.
Objectives of the Centre:
Prime Minister, NarendraModi who came to power after the elections held in May aims at reviving investment and giving a major boost to the infrastructure sector. He believes these measures are necessary to rekindle the country’s faltering economy which has had less than 5 per cent growth after the last 2 years.
Reasons for slow credit flow:
Analysts believe that there are a number of factors that have caused slow credit flow to infrastructure projects. The most important and major of these is the amount of bad loans on banks’ books.
It has been estimated that a total of 6 lakh crore or nearly one-tenth of a billion is the value of stressed assets and restructured loans together.
Future goals:
The RBI Intends to abolish the restructured category and prompt banks to chase customers for payment or set aside billion more reserves. This step is to be taken once non-performing loans are recognised.
The RBI will oppose any delay caused by banks to recognise bad loans. The apex bank is said to have already tightened its rules against defaulters from September. Mr. Rajan provided his estimates on the same, stating that power loans were three percentage points more expensive than home loans because the bank doubts recovery of these debts from such borrowers.
Source: NDTV Profit
